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SMEs listed in two steps with SPAC (Special Purpose Acquisition Company) and a Virtual Data Room to support the process.

SMEs listed in two steps with SPAC (Special Purpose Acquisition Company) and a Virtual Data Room to support the process.

Advanced digital services to support Business Combination with the target company.

The last SPAC on the market is Archimede, which, by raising between 32 and 47 million euros aims to create the first Insurtech insurance company on the Italian market. In 2011, the pioneer was Italy 1 Investments who raised 150 million euros to list on the Italian Stock Exchange the automatic vending machines group, IVS, now valued over 400 million euros according to its market capitalization. Italian SPACs, born following the experience of US blank check companies, have gathered numbers that are becoming increasingly significant.

Nearly 4 billion euros raised

Overall, 3,9 billion euros were raised by the approximately 30 Italian SPACs, based on the report provided by the website BeBeez, bringing investments for 1.5 billion euros if we consider the maxi operation through which Space4 (fourth experience with a SPAC for a team who has already listed Fila, Avio and Aquafil) has announced the business combination with the Piedmontese group Guala Closures, leader in security closures for liqueurs and wines. Over 15 companies have already landed at Piazza Affari, or are being listed. Using the SPAC Index provided by First Capital as a reference, which considers 25 listed SPACs among those that have already carried out the business combination and those that still have to, the Stock Exchange performance in the period 2011 - February 2018 is +55% compared to +19% of the Ftse All Share index of Borsa Italiana.

From an empty container to the target company in 18-24 months

The Special Company formula consists of an empty vehicle, i.e. without any tangible assets, which raises liquidity with investors and is listed on the Stock Market with the declared objective of investing, usually with controlling or non-controlling interests, in unlisted companies. These unlisted companies become listed companies through a reverse merger operation of the target company in the SPAC. This mechanism therefore simplifies the landing process on the Stock Exchange and should allow the shareholders of the target company to manage the company value before it is listed, without having to deal with the temporary sentiment of the financial markets. The SPACs were born from a team of sponsors with a long experience in management or in venture capital and who, by virtue of their reputation in the financial community, raised liquidity in increasing capital with institutional investors by investing in the vehicle. In Italy, the two most significant fundraising operations so far, have been Spaxs (600 million euros) and Space4 (500 million euros). The raised capital is used for three main goals: the aggregation with an operating company, the so-called “significant operation”; the payment of the withdrawal rights to the investors who opposed the business combination; the liquidation of the SPAC if a business combination is not consummated within the stated term, which is usually 18-24 months.

Investors have the last word

The quality and standing of the sponsors are decisive for the success of a SPAC, from its creation to the business combination, and the path is structured and well defined so as to limit as much as possible the risk for investors and to allow constant monitoring. The SPAC is created as a joint-stock company and is listed through an IPO by issuing ordinary shares for investors accompanied by warrants (market warrants) that can then be converted into shares of the target company once on the Stock Exchange, while sponsors receive special shares of the SPAC, accompanied also in this case by warrants (sponsor warrants): both instruments will then allow the sponsors to convert them into ordinary shares of the target company at pre-established conditions, with the obligation, however, to not withdraw from the capital for the first 3 years. The search and identification of the target company is a crucial step for the success of the operation: as mentioned, the team that leads the SPAC has a limited time to propose the operation to SPAC’s shareholders’ meeting. If the business combination is approved (both by the SPAC and the target company), the SPAC acquires the agreed capital share and then proceeds with the merger. Shareholders who have voted against the combination can withdraw by obtaining a pre-agreed price per share. If the proposal is rejected, the sponsors can look for other companies to invest in, or liquidate the SPAC.

One VDR to manage the entire process

The tight schedule, the multitude of parties involved and the three phases (the creation of the SPAC, the identification of the target company and the business combination) impose a constant control of the operations: a virtual data room manages all the required steps. Initially, the platform allows sponsors to evaluate the investors’ interest in the project and the raising capital for the IPO. Secondly, the VDR is used for the scouting phase of the target company and for the due diligence, entirely managed online with the data access, management and control. The parties involved in the transaction, together with their legal and financial advisors, access the multilingual and multifunctional platform through restricted profiles, and gradually build up a secure "vault/archive" through which the shareholders of the SPAC will evaluate the business combination before the decisive meeting in which they will have to express their vote regarding the acquisition. The secure storage provided by the Virtual Data Room will in any case, guarantee the tracking of the entire process, also for subsequent analysis.

Redazione Il Sole 24 Ore Radiocor